Wednesday, August 2, 2017

Bury The Burial Grounds - II

One of Bhutan’s Cabinet Members a few years back had said that when the Punatsangchhu Hydro Electric Project I & II (PHEP-I and PHEP-II) come on stream and start to generate electricity, Bhutan would be propelled from a third world country to the status of a donor country. Today, a little over half a dozen years later, while that dream remains shattered, the nightmare lives on. In doing the PHEP-I and PHEP-II, this generation of Bhutanese have dug ourselves some fine burial grounds in which to bury all our hydropower dreams. Unfortunately it is not only the sweet dreams that remain crushed and trampled, but in the process we have imperiled the lives of many future generations of Bhutanese.

The dream merchants had sold us a dream so hypnotic and irresistibly alluring that even in the face of imminent economic and environmental disaster, some still believe that hydropower is the only egg we have. In the process, all our other potential eggs have remained neglected, the consequences of which we will have to face in the coming years.

We have been in a state of stupor for far too long. For sure we have been led up the garden path - not to say that it is without precedence – we have walked that path once too often. But none have been as perilous as this one. The path of doom that we are now walking has drawn international attention and scrutiny. Respected international institutions have expressed doubts about our ability to remain solvent, in the face of mounting debt. An alarmed national political party has gone as far as to call Bhutan the “Greece of South Asia”. The analogy is not very far-fetched, if not downright accurate.

Consider that each of these hydropower projects will, individually, end up costing more than the country’s entire GDP. And, when the curtains come down on these behemoths – all indications are that they are both doomed to failure – our economic enslavement would be total. Being called “Greece of South Asia” would be kindness personified.

Figures released by the government show that 80% of our debt is hydropower related. And, two of our biggest hydropower projects – PHEP-I and PHEP- II are in a perpetual state of reconstruction, rather than construction, caused by what they call “geological surprises”.

It is for this reason that I call upon our government to cut our losses and shut down these disasters – NOW - before we arrive at that point of no return. We are fast approaching that threshold beyond which it will be too late for us. It is wise to be subservient to a force that we have neither the wherewithal to withstand, nor to surmount.

As I have said in my last post, we have both the elements stacked against us – economic as well as environmental. For this post I want to restrict myself to PHEP-I and its economic aspects – plain simple mathematics.

PHEP-I was originally planned for 1,000 MW at Nu.35.00 billion

It has now been upgraded to 1,200MW at a cost that is not known as of now

1 MW is 1,000 KW

Therefore 1,200 MW works out to a total of 1,200,000 KW

Going by the level of efficiency at which the projects are being implemented, we can safely assume that the projects are unlikely to achieve 40% of their installed capacity. But let us be generous and agree that the projects will achieve an average generation of 70%.

This means that PHEP-I will generate 840,000 KW of electricity every day that we could sell to India at COST+ rates.

Now, we know that as of December 2016 the cost of PHEP-I has crossed Nu.97.00 billion from its original estimated Nu.35.00 billion. As of today, not even 50% of the project has been done. Thus it is safe to assume that the final cost, if this project will ever be done in the next 10 years, will escalate to a minimum of Nu190.00 billion, at the rate of cost escalation that has been experienced so far.

This sum ties in nicely with what the Hon’ble Prime Minister had stated during his State of the Nation speech – that the country has a debt of Nu.171.00 billion of which only Nu.34.5 billion is none-hydro. NOTE: India pays 30% of the cost of these two projects, in the form of grants. We pay 70% at 10% interest.

The following is a comparative study of the project as it was initially planned, and after its generation capacity was increased to present level. The statement shows a layman’s calculation of per KW cost of generation.

NOTE: The calculations are indicative and not accurate. It is merely to demonstrate cost escalation.

As opposed to the above, our hydropower egg basket – India – is looking at charging less than Nu.3.00 per kilowatt-hour, for their solar-generated electricity. Thermal and hydropower generation is now going out of fashion in the Indian context.

The above mathematics ignore the following:

1. It is absolutely impossible to achieve 70% generation

2. It is impossible to maintain generation of 70% every single day of

its rated 12,775 days of useful life

3. It is impossible that the plants will not require repair, replacement

and maintenance from time to time

4. Records from Chukha and Tala tell us that during the winter months,

generation drops to as low as 10% of their capacity

5. De-silting: how efficient is the design? (if this is not looked into properly

I suspect that instead of water, the dams will be filled with silt and debris

- reducing water storage capacity)

6. GLOFs/flooding/insufficient water/earthquakes

7. Huge Indian currency shortage caused by these projects

8. Cost of decommissioning at the end of their useful life

9. Depreciation of plant and machinery

10. Other seen and unseen costs

The Bhutanese people are constantly reminded that we have an agreement that stipulates that India will buy all of our electricity at Cost+ prices. I suppose India will be honorable enough to keep to their part of the bargain. But what is the guarantee that they will fulfill their promise in a manner that is beneficial to us, in the face of compulsions dictated by emerging market realities?

India is already electricity surplus, way beyond their need. Hundreds of thousands of GW of solar and wind generated electricity is going to be coming on stream in the next few years. Thus, what insanity would drive India to buy our electricity at Nu.18.00+? To fulfill the promise they made to us? Not at this price levels! They have other options open to them.

In my view the situation is headed in such a direction that there is no two ways about it: India will have to advise Bhutan to shut these projects down. Doing so will demonstrate that big brother India truly has Bhutanese interest in their hearts, as they claim they have. If they do so, they will stand vindicated for what they did in Doklam – that they have acted in the best interest of Bhutan, gladly and voluntarily, and without malice to one and all.

India should demonstrate good intent by not encouraging Bhutan to continue to tread this ruinous path. A mortally wounded Bhutan with her back to the wall can turn out to be a volatile ally. Before the situation spirals out of control, India should seriously look at reorienting its Bhutan hydropower policy. It will be mutually beneficial and strategically self-serving.

5 comments:

The mathematical calculation is wrong. A day has 24 hour and KW or MW need to be multiplied by 24 to get KWhour which is unit of electricity. KW and MW are power like speed and multiplied by time gives units of consumed electricity or in case of speed, distance covered

Thanks ... I was sure I couldn't get the calculation rite ... so that is why I wrote that it is not accurate. If you know how to calculate, please do so and let me know. Given the above figures, what would be the cost per unit?

The relationship between India and Bhutan was described as "from dependence to inter-dependence" or something to this extent when some Indian VVIP's visited Bhutan many years ago. Recent developments indicate that our neighbor's perspective is still stuck to the dependent mode.

This debate on the development of hydropower projects in Bhutan has implications beyond environmental and social issues. And beyond knocking on India's doors to expedite completion of the projects earlier, we Bhutanese need to think within. The PHPA projects were eyeopeners for our beauracrats in the power sector and senior policy makers, and yet they have not been able to extinguish the flame of excitement to destroy all our watersheds. Since then Mangedechu and Kuloronchu have started with pressure mounting to start destroying the upper Kheng area (Chamkar Chu project). On a smaller scale DGPC has started work on the Tangsibji project - somehow our hydro people still see profits in putting a turbine on any body of running water.

While there is not much negative publicity of the Mangdechu project, the Kuloronchu project is already mired in the complexities of Joint Venture projects. So things don't look too good. Any sane person would stop and think when things don't look good, and this is exactly what we Bhutanese should be doing. Why put your eggs in the basket (whether it is the only egg or the only basket is irrelevant Mr.Minister) at all when the basket is torn.

We glorify our hydro projects and already exacerbate our bad spending habits based on the assurance of future revenues. Chukha is loan free now with Tala, Basochu, Kurichu and Dagachu already contributing to the grid but our financial situation is worse than ever before. And yet we carry on with the assurance that hydro loans are self-servicing loans. Businesses and individuals go broke when they wager too big on such self-servicing projects, and it is the same with some of our hydro projects. The geological uncertainties have created such a huge financial uncertainty for Bhutan.

We need to stop, think and restrategize. Most importantly, the domain of the hydropower sector has to move beyond policy makers and bureaucrats. We have to let the Indians know that there are concerned Bhutanese citizens who have the vision to see these projects beyond future revenues. And that these citizens want to be heard and included. And above all, Bhutanese must contribute to this discourse, not solely to oppose hydropower development, but at least to call for a better deal, in terms of project execution and completion. The implications of the many geological surprises and cost escalations must be shared more equitably. And most importantly, we Bhutanese must stop letting our hands dig deeper into our friendly neighbor's pockets. Instead we must begin to tighten our belts and stop playing politics with aid money. The largesse spending habits of the government with money dug from our neighbor's pockets puts us in a very vulnerable position when we have to conduct objective negotiations; forget pushing for faster delivery of hydro projects when we can't even move Dantak to complete the Damchu bypass on time.

Simple Cost (CAPEX) NU per KW= Nu.35000000000/1000000= Nu. 35000 or 190000000000/1200000=Nu. 158,333.34.A general rule of thumb is that the CAPEX for power plants is $1 per W, $1,000 per kW, or $1 million per MW. Typically, consumer prices range between $0.10 and $0.14 per kWh (Kilowatt Hour) for commercial and residential users